$5.6M in city bank account

STOCKTON - For the first time in two years, Stockton's bank account shows a positive balance, which city officials attributed in part to an uptick in sales taxes and savings brought on by the difficulty of filling empty positions on the police force.

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By Scott Smith

recordnet.com

By Scott Smith

Posted Dec. 7, 2012 at 12:01 AM

By Scott Smith

Posted Dec. 7, 2012 at 12:01 AM

» Social News

STOCKTON - For the first time in two years, Stockton's bank account shows a positive balance, which city officials attributed in part to an uptick in sales taxes and savings brought on by the difficulty of filling empty positions on the police force.

That extra $5.6 million in the city's general fund - the subject of Stockton's Chapter 9 case - will be held for use in the city's ongoing bankruptcy, Chief Financial Officer Vanessa Burke said in a staff report.

On Tuesday, Burke is expected to present the year-end financial results to the City Council in addition to another long-awaited, 300-page report dissecting Stockton's finances for the year ending June 30, 2011, called the Comprehensive Annual Financial Report.

These two developments in Stockton's finances will be heard at the City Council's final scheduled meeting for 2012. The council will reconvene in January with four of its seven members newly sworn in.

Challengers to Stockton's bankruptcy have criticized the city for delaying the 2011 financial report, which city officials blamed on pre-bankruptcy mediation, an audit by the state Controller's Office and the dissolution of the city's Redevelopment Agency.

An outside audit firm hired to perform the report found Stockton had reported accurate figures, which City Manager Bob Deis said came as no surprise.

"A key observation is, as we've been saying all along, they didn't find any money," Deis said. "They agreed with the numbers that we've been using all along."

Stockton hired Maze & Associates to audit the city's finances. The firm returned the same results as Management Partners, a consultant hired to double-check the city's own accounting. Stockton filed for bankruptcy protection on June 28.

"We've been very transparent on the deficiencies in the accounting," Deis said. "We shared all that with the auditors and said, ... 'You look under every nook and cranny and give us your feedback.' "

The city's annual reports for 22 consecutive years have been awarded a Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association, an international accounting standards board.

Accountant Ned Leiba of Leiba & Bowers, who reviews the city's audits as a concerned citizen of Stockton, found the award rich with irony, considering the years of financial mismanagement in the city, which led to bankruptcy.

"It gives me an ulcer in some way that these reports have been misleading in a fundamental way," said Leiba, noting that this systemic problem goes well beyond Stockton.

He criticized this and past annual financial reports as being incomplete and difficult to read for elected officials, who are asked to vote on things such as policy choices and when to issues millions of dollars in bonds.

"That is the heart of the problem," Leiba said. "This stuff passes as the standard."

Yet the past two years of difficult cuts and the decision to file for bankruptcy appear to be paying off with the newfound, positive balance in the city's coffers.

A healthy city typically has reserves equal to two months of general fund spending. In Stockton, the general fund equals $161 million, so its reserves should amount to $27 million, Burke reported.

Deis said the city is showing signs of financial recovery.

"While we're not cutting a fat hog, it's nice to get back to a quasi-normal state," he said.

Wall Street creditors stand to lose hundreds of millions of dollars as a result of Stockton's bankruptcy. The city's meager reserve shouldn't draw too much attention from them, he said.

The money may be used, for example, if the city needs to relocate its information technology department from the former Washington Mutual building at 400 E. Main St., which the city lost to foreclosure.

Or if Stockton's administrative offices remain at the old City Hall building, the city may have to pay for badly needed repairs. Stockton also may need some cash on hand to settle with a creditor amid bankruptcy negotiations.

Assured Guaranty Corp. and National Public Finance Guarantee Corp., two of Stockton's creditors, declined to comment Thursday in response to the city's positive cash balance.

The money came from an unexpected increase of $1.1 million in sales taxes. The city saved another $1.8 million for having vacant positions in the Police Department, despite aggressive efforts to hire more officers.

The city had $1 million left over from the money budgeted for pre-bankruptcy mediation.

Vice Mayor Kathy Miller said the city is choosing between using the money to make one-time payments or to follow through with its bankruptcy and fix the city's finances once and for all.

"We needed to address the structural issues," she said. "We knew there were costs in that. Those were the choices we have had to make."

Sgt. Kathryn Nance, president of the Stockton Police Officers' Association, said she was torn upon learning of the extra cash. She hoped that, at least, officials at City Hall would make good use of it, such as fighting crime.

"They need to recognize what the city needs, and hopefully they put it to proper use," she said. "I'm sure that there's a portion of savings that comes from not paying the bills they were paying."